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slightly under 1%, cents on each dollar of sales, and the average net profit per quart of milk was one-third of a cent in 1952, the most recent year surveyed.
That survey was made by the University of Indiana.
Only the intense competition engendered by the free-enterprise system could bring about such results.
Fortunately our industry does not have direct Government competition in the sense that many other industries have it. However, it was just previous to World War II that a Government department proposed that the Federal Government build approximately 16 milkprocessing plants in the United States on the untenable theory that, in the event of war, private industry processing capacity for additional supplies for the Armed Forces and the civilian population would be inadequate.
That proposed legislative authority to compete with our dealers was rejected in committee by the House of Representatives.
This incident is cited only as an example of the fantastic extremes to which Government planners will go when imbued with the belief that the Federal Government should duplicate commercial facilities of private industry.
At present our great industry which processes approximately 50 percent of the 120 billion pounds of milk produced annually is not faced with direct competition, but, as explained below, a form of indirect competition is developing in the Armed Forces commissaries and post exchanges.
My purpose, therefore, in appearing before this committee is not to object to the mehtods used by the Armed Forces in purchasing milk. Such milk is bought by competitive bids, and milk dealers from near and far bid on these contracts. In some areas, abuses have crept in as a result of this system, but the purpose here is to point out the lack of controls after the milk is received by commissaries.
Milk is purchased by commissaries for two purposes: First, to serve in messhalls and, second, to sell to commissioned officers, noncommissioned officers not attached to organizations, and to civilian personnel.
We have numerous reports of such sales being made for as much as 12 cents per quart below the retail prices in stores and delivered to the home through private channels.
Reports come to us constantly of post exchanges and commissary sales to both military and civilian personnel, and reaching civilians not entitled to these special prices. The controls seem all too loose. Apparently many civilians patronize the commissaries. In many places, milk is purchased by the case and redistributed to friends and neighbors, resulting in loss of sales to legitimate businessmen in the area.
The milk industry is highly competitive. Prices are kept low by this competition for markets and much of the public realizes that our prices are fair. However, around our military establishments, the availability of this cut-price milk not only reduces the sales of private business, but makes it difficult for the milk dealer to explain his legitimate higher costs. This is especially true in those areas where the successful bidder can purchase milk from farmers at manufacturing milk prices, which are lower than prices paid for class I milk. Such purchases frequently are at prices below prices set by State law for
civilian business, and the farmers also suffer a loss, not only on milk used on the military posts, but also on the quantities that leak out to the unathorized civilians.
H. R. 9155 has been introduced by Mr. Gubser to correct this situation in States with milk-control boards.
We have received specific examples of this situation from all parts of the country. Extracts of communications from our members that follow show the widespread nature of this problem.
I should say we received the invitation to appear here last Thursday, and immediately sent out a special bulletin to all of our members asking them to telegraph or send airmail replies. So we had to do this very fast; but you will perceive, when you look this over, of what a widespread complaint we have.
You will note that two, somewhat irrelevantly, cite the low-interest rates and tax freedom for dairy farmer cooperatives as a part of the problem.
It should also be noted that the United States Public Health Service owns a dairy farm in Texas. Not cited is the dairy farm owned by the Navy to supply milk to the Naval Academy at Annapolis which, we understand, operates at a considerable loss—not the Naval Academy, but the dairy farm.
I can say at West Point they buy their milk from established dealers. They don't try to run a dairy farm.
I happen to be a graduate of West Point, and we believe our first duty is to teach men how to be officers, not to operate a dairy farm.
The CHAIRMAN. Does the personnel of the Academy operate the dairy farm?
Mr. Castle. Oh, no; it is operated under the authority of the Naval Academy. They have the land. They have the barns. They have the cows, and they supply
The CHAIRMAN. Pardon me for interrupting you but I understood you to say it was the first duty of the Academy to make officers.
Mr. CASTLE. That is what I said.
The CHAIRMAN. But keeping a couple of cows or a couple hundred cows doesn't interfere with that. The cadets don't have anything to do with the cows, except to drink the milk.
Mr. CASTLE. That is true, but certainly the Superintendent of the Naval Academy has to have the responsibility, and you could say that would distract his attention. However, that is the Navy's problem.
The CHAIRMAN. You don't mean the attention of the Naval Academy is distracted by the fact they have a dairy herd, do you?
Mr. CASTLE. I do mean they have a responsibility for it, because it is under him.
The CHAIRMAN. That is under him, yes, but he transfers that to somebody else, just like he does as far as football is concerned. Football distracts his attention, too. You wouldn't abolish that, would you?
Mr. CASTLE. No; I wouldn't but I would abolish the dairy farm,
Mr. CHUDOFF. Mr. Chairman, I wonder who drinks the goat milk at the Naval Academy.
Mr. CASTLE. I can answer that question. This happens to be the kind of goat that doesn't give milk. I mean the sex.
Mr. OSMERS. Mr. Chairman, I would like to ask a question, now that we have gone into Annapolis.
Annapolis is located in the competitive milk market, is it not?
Now, gentlemen, it would take quite a bit of time to read these various complaints.
The CHAIRMAN. Pardon me once more.
You say, in answer to Mr. Osmers' question, it is a competitive milk market. Are you sure about that?
Mr. CASTLE. Yes, sir; I am.
The CHAIRMAN. I am sorry. I disagree with you. When I pay 26 cents for a quart of milk here in the District and when their regulations prohibit Michigan milk from being brought down in tank trucks, it doesn't seem to me competitive.
The Maryland market is confined, from a practical standpoint, to the Maryland and Virginia farmers. It doesn't make any difference but
Mr. CASTLE. I do not grant it is not competitive, sir, and I could go into that a great deal, but I didn't come here for that purpose.
The Chairman. I would agree with you and say the competition is very slight and it doesn't very much help those of us who have to purchase milk here in the District.
All right; it is all beside the point.
Mr. ČASTLE. Of course, I think 2 pounds of milk for 26 cents is a great bargain, Mr. Chairman.
The CHAIRMAN. I know. You must have some cows.
Mr. CASTLE. No. I happen to be a worker for the Milk Industry Foundation.
The CHAIRMAN. A what?
Mr. CASTLE. I am the vice president of the Milk Foundation, and I make my livelihood that way.
The CHAIRMAN. I see. I understand it, then.
Mr. Castle. I might say, Mr. Chairman, I am helping to pay your salary.
The CHAIRMAN. I know, and what you pay is so very small in comparison with the benefit you get out of it that the illustration doesn't mean anything. Mr. Castle. That I agree with.
In an endeavor to save time, I thought I would merely point out that, from these various geographical locations which are noted here, embracing about 18 States, the complaint is the same--not that the Armed Forces buy milk, but the milk they buy at wholesale reaches civilians who are not authorized to receive it.
Since I prepared this statement, gentlemen, I received from San Francisco, from a very eminent man in the dairy industry, some specific examples, such as you have requested in your telegram, and the letter I will read is only five paragraphs and will take a minute:
In the Philippine Islands the post exchange is operating a recombined milk and ice cream plant, supplying personnel at Clark Field and extending their operations into the Subic Bay and other Navy installations.
They are operating this with a civilian manager under the direction of the Board that controls the post exchanges, the members of which are all military.
They are pricing their products lower than commercially made products and are able to do so because any losses are underwritten by the post exchange; and, furthermore, they do not have the normal expenses of operations that a civilian plant would have.
This installation is presently spending a great deal of money putting in ablank unit and in laying out a larger milk-processing plant. I won't mention the commercial name
We happen to know the size and style of the equipment and, knowing this, realize they will have difficulty in successfully operating the plant. The mistakes for this operation will be borne by the Armed Forces.
It is competition such as this that makes it difficult for civilian bodies to render the greatest service and assistance to the Armed Forces.
Now, I requested Mr. James Jackson of Atlanta to come and give his direct testimony because he is closer to the daily operations of the milk dealers in his State, or course, than I am and, with your permission, I will cede part of my time to Mr. Jackson.
Mr. CHUDOFF. Mr. Chairman, a parlimentary inquiry: Would it be proper parlimentary procedure for us to ask Mr. Castle questions before listening to the next witness?
The CHAIRMAN. Surely, if you wish.
Mr. CHUDOFF. Mr. Castle, I would like to make this observation and ask you a question: When I was a member of the Pennsylvania State Legislature, we set up the Pennsylvania Milk Control Commission, or the Pennsylvania Milk Control Board—I forget which nowand we were told the reason we set that board up was a twofold purpose:
No. 1, milk being coupled with the public interest, we wanted to make sure competition wouldn't be such that the farmers wouldn't get a fair return for their investment in dairy farms; and
Secondly, the public wouldn't be cheated by paying too much for milk.
Now, as a result of that, our milk commission meets occasionally and changes the price. Usually they cut a half cent off the quart or add a cent on to the quart during the year, depending on probably the availability of the supply of milk.
It appears to me the biggest difficulty your association has with milk is that the military is buying it on a bid basis rather than paying the retail price for it in the particular market area.
Isn't that your complaint?
I read these statements. You say certain post exchanges or commissaries—for instance, take Pennsylvania; that is my home State:
Our area suffers loss of at least 1,000 quarts of milk per day sales made by Valley Forge Army Hospital commissary. Our minimum State milk control price is 23 cents a quart. Valley Forge commissary milk is 16 cents a quart.
And it goes on to say:
Officers, enlisted man, other workers living off base buy milk, dairy products for themselves and friends at commissary.
Mr. CASTLE. And they say "buy for themselves and friends."
I presume this milk is sold to the commissary on a competitive-bid basis; is that correct?
Mr. CASTLE. That is correct.
Mr. CHUDOFF. People in making that competitive bid have to make a fair profit?
Mr. CASTLE. That is right. Mr. CHUDOFF. Why is it they can sell milk to the commissary, which can retail it at in cents a quart and make a fair profit, whereas the ordinary consumer has to pay 23 cents a quart?
Mr. CASTLE. Well, I can answer that question, I think: In the first place, that milk, very likely, is shipped in from another State, where they have a surplus.
I know of a case where milk from Iowa was the low bidder in Jacksonville, Fla., for example. They had a surplus out there and the Navy, very properly, took the low bid.
Mr. CHUDOFF. You mean you are presuming that; you don't know whether that is a matter of fact?
You just say you think it comes from out of the State, but you are not sure; it might have come from the State; is that right?
Mr. CASTLE. I doubt it, because you have a Federal marketing order in Pennsylvania, which fixes the minimum price to farmers, and you have a Pennsylvania State Milk Control Board, which fixes the minimum price to farmers. So I can't see how the milk dealer can buy lower in your State than the minimum.
Mr. CHUDOFF. Neither can I, but I don't want an answer based upon a presumption. I want it based on a fact.
Mr. CASTLE. All right. I can't give you that, but I can tell you that is a fair presumption because we have many cases like it.
Mr. CHUDOFF. You and I can't understand the same thing; yet, it is happening every day—why, a milk producer can sell for 16 cents a quart and make a profit, whereas the State Control Commission allows them to sell it to the consumer at 25 or 26 cents a quart.
Mr. Williams. Will the gentleman yield for a moment?
Mr. WILLIAMS. Isn't the commissary in the position comparable to the grocer?
There is the producers and the dealer, or the retail outlet. There is no profit necessary, I suppose, to the commissary, where there is to the grocery store.
Doesn't that account for that?
Mr. CHUDOFF. Yes, but the producer, the one who produces the milk, has to make a profit.
Mr. WILLIAMS. And there is no profit to be made.
Mr. CAUDOFF. In other words, you think the spread of profit becomes exorbitant between the producer and the distributor?
Mr. WILLIAMS. I didn't say that. I am not making that conclusion, but there are two places where a profit has to be made in the normal sale, and when they are selling to a commissary there is only one, the producer, because the post exchange doesn't have to make a profit.
Mr. FOUNTAIN. You knock out the middleman in that case.
Mr. HILLELSON. Is Mr. Williams suggesting the grocer makes 7 cents profit on a quart of milk?